After yet another long stretch of doom and gloom leading up to Apple’s fiscal second-quarter earnings report on Tuesday, the company racked up yet another win. The tide actually turned early Tuesday morning, and Apple shares ended up closing at just over $169, up about 2.3% on the day. Apple then turned in another solid quarter, and shares rose a further 3% after hours. iPhone sales misses ever so slightly, coming in at 52.2 million units compared to the 53 million analysts were expecting. But the company reported record second-quarter revenue, June-quarter guidance that was better than many had feared, and it announced plans to buy back an additional $100 billion worth of its stock.
Once again, investors were pleased and they showed it with their wallets as Apple shares climbed. As for analysts, let’s take a look at what some of the most noteworthy financial analysts who cover Apple had to say about the company’s Q2 2018 results.
Amit Daryanani, RBC Capital Markets: “AAPL – Proving Skeptics Wrong…Again”
AAPL reported an impressive March-qtr beat and guided June-qtr sales ahead of expectations – the quarter was all the more impressive given how negative sentiment was heading into EPS call. March-qtr print came in at $61.2B/2.73 vs. street at $61B/2.69 but more impressive was June-qtr guide for revenues in the range of $51.5-53.5B (vs. buyside at $46-48B). The strength in revenues reflects continued growth from iPhones (+14% revenue, 3% unit growth) coupled with acceleration in services (+31% y/y) and other (wearables, +37% y/y). We think slowly but surely, AAPL is morphing into more than just an iPhone story and is displaying ability to sustain revenue growth irrespective of iPhone trajectory. Finally, AAPL announced an incremental $100B buyback program (no timeline to finish it, we think in 12 months) and raised dividend by 16%. Net/Net: We think the print/guide were a notable positive for AAPL. We see several levers that AAPL can use to convert low single digit unit/sales growth to mid-teens EPS growth: 1) Gross margin upside from cost downs, NAND tailwinds & yield efficiencies, 2) Services growth, & 3) Capital allocation. Maintain OP and $203 price target.
Robert Cihra, Guggenheim Partners: “iPhone ASP and Services Keep Driving Growth”
Investors have so far seemed unimpressed by the iPhone X uptake since its launch but we think they should be MORE impressed by Apple’s ability to raise its blended iPhone ASP double digits Y/Y while effectively still maintaining unit share in an otherwise no-growth smartphone market, illustrating the power of its high-end demographic and peel-off-the-top model. From here, we expect attention to now start shifting to NEXT-gen iPhones refreshing in Sept, which we see bringing even larger screens for both OLED-based X (6.5”) and LCD-based (6.1”) SKUs, potentially simpler branding (no more numbering), more 3D sensing and on-board AI/ML and AR capabilities.
Wamsi Mohan, Merrill Lynch: “$100bn new buyback, implied iPhones for June better than expected”
Revenue guide better than feared… New buyback exceeds our expectations… Services revenue strength greater than expected… Greater China rev grows y/y for the 3rd quarter in a row… We expect the stock to be higher on this print, on the better than expected iPhone guide and we are encouraged by the larger than expected buyback authorization.
Daniel Ives, GBH Insights: “Cook Delivers Again Despite Rampant Fears”
Heading into Apple’s much anticipated March quarter tonight the Street has gone into “full panic mode” as supply chain checks out of Asia indicate that June iPhone shipments are trending well below expectations, neutralizing any positive data points (higher ASP front and center) from a generally in line March quarter. That said, the company guided to total revenues for the June quarter of between $51.5 billion to $53.5 billion vs. the Street at $51.5 billion and whisper numbers trending below $50 billion over the past week. This guidance number was much better than feared and will be a “major relief” for the stock as the trough June quarter shows core demand, ASPs, and momentum heading into the September quarter and new iPhone product cycle are alive and well despite disappointing iPhone X demand.
Tim Long, BMO Capital Markets: “Better Than Feared, But Some Questions Arise”
iPhone shipments in March grew 3% y/y, just shy of consensus but above our expectations. ASP came in light, down 9% q/q despite a full quarter of iPhone X availability, which echoes our concerns about mix weakening… Some questions: We are troubled by the disconnect between a very weak supply chain and slightly-better-than-seasonal iPhone performance. We see a similar disconnect in China, where growth was great but we think units declined 10% y/y. Metrics for the Service business are positive but 31% y/y growth is tough to explain. Last, we see no reason for the huge increase in inventory in the quarter.
Walter Piecyk, BTIG: “Increasing Estimates and Target to $207”
We estimate that Apple’s new guidance implies that it will sell more than 40 million iPhones in the June quarter, contradicting the concerns highlighted by our peers in recent weeks. We doubled our share repurchase expectations to $20 billion per quarter, which represented $0.25 of the estimate revision. Service revenue grew 30% and represented 15% of total revenue. Meanwhile, Apple continues to grow iPhones sales despite phone upgrade rates hitting record low levels at many operators. As those upgrade rates bottom and services revenue continues to grow, Apple could secure a higher valuation multiple from investors based on a change of perception to viewing Apple more as a recurring revenue business.
Michael Olson, Piper Jaffray: “Phone Holds Strong in March; June Guide Better Than Feared”
Revenue guidance for the June quarter is above consensus, but the gross margin outlook is fractionally below. Additionally, Apple announced a new $100B buyback and a dividend increase of 16%. Despite potential for ongoing uncertainty around iPhone X demand, we recommend owning AAPL on potential for a “super-long” cycle, which we expect will include a wider array of “X-gen” devices this fall.
Abhey Lamba, Mizuho Securities: “Buybacks Support Earnings Through Lull in Product Cycle”
Guidance implies iPhone units largely in-line with consensus while services came in better. We think the capital returns news flow takes over from fundamental performance as the headline for the stock over the n-t as Apple will support earnings through the product cycle transition.In all, the story remains largely unchanged to us – we see ongoing pressures on iPhone shipments over the next couple of quarters… In the absence of another meaningful growth driver, we think the stock is fairly valued at current levels.
